This expected surge begs the question of whether U.S. natural gas supplies can continue to keep pace. I read an article earlier this week that correctly noted that to date, most of the U.S. natural gas production growth has been in the Appalachia Region. Appalachia production has exploded since 2009 from below 2 Bcf/d to more than 30 Bcf/d in 2018.
The EIA forecasts that the Appalachia will continue to produce 52% of cumulative production of U.S. shale gas through 2050. The article I read questioned whether Appalachia growth could continue its blistering pace, but it overlooked an important new source of U.S. natural gas.
The associated gas (co-produced with oil) in the Permian Basin is beginning to have a large impact on the natural gas market. There is so much gas being produced in the Permian that it has outstripped the pipeline capacity to get that gas to market. New pipelines are being built, but in the interim there has been significant flaring and even natural gas prices falling below zero at times in the area.
Natural gas production in the Permian Basin has reached 13 Bcf/d, which is what the Appalachia Region produced in 2013. That reflects a doubling of production there in just over two years, and is now second only to the Appalachia Region’s 31 Bcf/d.
Further, Permian Basin gas production should continue to grow along with the region’s oil. A new assessment by the U.S. Geological Survey (USGS) estimated that there are 281 trillion cubic feet of undiscovered, technically recoverable natural gas in the Permian. That’s enough gas for 58 years of Permian production at 2018 rates.
So it looks the Appalachia Region and the Permian Basin will provide sufficient gas to feed the monster LNG demand growth that is forecast over the next decade.
The implication of this surge in LNG trade will be to make natural gas a more globally traded commodity. It won’t be quite as fungible as crude oil, but the impact should be to decrease some of the natural gas price disparity seen around the world.
U.S. natural gas prices should increase, while those in Asia and Europe should decline. The beneficiaries will be U.S. natural gas producers, global natural gas consumers, and the environment — as natural gas displaces coal in many Asian markets.